Indifference Map An indifference map is a set of indifference curves that describes a person's preferences for all combinations of two commodities
Indifference Map An indifference map is a set of indifference curves that describes a person’s preferences for all combinations of two commodities
Indifference Map Clothing (units per week) Market bas ket A is preferred to B. D Market basket B is preferred to D. B U Food (units per week)
U2 U3 Indifference Map Food (units per week) Clothing (units per week) U1 B A D ▪ Market basket A is preferred to B. ▪ Market basket B is preferred to D
Indifference curves can't cross Clothing (units per week) The consumer should be indifferent between A. B and d however. B contains more of both goods than D B D Food (units per week)
U1 U2 Indifference Curves Can’t Cross Food (units per week) Clothing (units per week) A D B The consumer should be indifferent between A, B and D. However, B contains more of both goods than D
Substitution Clothing 16 (unIts per week) 14 The amount of clothing 12 -6 given up for a unit of food decreases from 6 to 1 10 B 8 D 2 G Food 2345 (units per week)
-6 1 A B D E G -1 1 -4 -2 1 1 The amount of clothing given up for a unit of food decreases from 6 to 1 Substitution Food (units per week) Clothing (units per week) 1 2 3 4 5 2 4 6 8 10 12 14 16
Marginal Rate of Substitution The marginal rate of substitution (MRS quantifies the amount of one good a consumer will give up to obtain more of another good o It is measured by the slope of the indifference curve
Marginal Rate of Substitution The marginal rate of substitution (MRS) quantifies the amount of one good a consumer will give up to obtain more of another good. It is measured by the slope of the indifference curve